The rare reverse arbitrage window from Asia to Europe for orthoxylene that has been open for the past two months looks set to close in July, market sources said Friday.
"The arbitrage had not been worked for several years as it was too risky, but it seems to be workable now as Asian OX prices have dropped a lot," said a trader.
OX loading in H1 May was priced around $687/mt CFR China and European material loading in H1 June at $817/mt FOB ARA, according to S&P Global Platts data. The minimum voyage time from Asia to Europe is six weeks.
With freight between the regions currently at $50-$55/mt for standard 3,000 mt cargoes, and factoring in marginal profits for risk undertakings, the arbitrage was open, trade sources said.
Asian OX has been consistently cheaper than in European OX this year due to weak demand for downstream phthalic anhydride, and the arbitrage started to open at the start of April, when the price differential reached $70/mt, Platts data showed.
"OX inventories in Asia are very high so prices can be negotiated to suit the buyer as the surplus stock needs to be consumed," said a trader.
A source at a major Chinese producer said inventories at East Chinese ports currently stood at 65,000 mt.
At the same time, European OX prices are being supported by tight supply.
Shell shut its 60,000 mt/year Wesseling OX plant in Germany over March-April for scheduled turnaround, removing around 5,000 mt/month of OX from the market, according to trade sources.
Total's 115,000 mt/year Gonfreville OX plant in France declared force majeure in January.
There was also talk of a decline in Russian material in the European market due to production issues, which could not be verified.
However, the arbitrage window is likely to close in July when the forward market structure in Europe is seen likely to be in backwardation, traders said.
Major producers were also seen to be progressively resolving their production issues, which was already making substantial arbitrage attempts risky given the voyage time, traders said.
It typically takes traders in South Korea and China 50-60 days to send spot orthoxylene cargoes from Northeast Asia to the US, and invoicing and other documentation can add up to another 10 days, resulting in an estimated landing date in end July, according to market sources.
